The sense of optimism in the wake of the release of the GDP data for the first quarter of the current financial year (April-June 2009) is rooted in the belief that the worst might be over. The rate of growth at 6.1 per cent might not be significantly higher than the 5.8 per cent recorded in the two previous quarters. But viewed in conjunction with other recent economic data it does indicate recovery, albeit a muted one. The index of industrial production (IIP) for June had suggested industrial recovery. At 7.8 per cent, it was the highest in 16 months. The GDP estimates reinforce the view that the turnaround in the industrial sector has begun. The manufacturing sector grew by 3.4 per cent. Construction, a laggard in previous quarters, grew by an impressive 7.1 per cent. The biggest segment in the services sector— trade, hotels, transport and communications — recorded a reasonably robust growth of 8.1 per cent. The segment comprising finance, insurance, real estate, and business services has actually fared better than last year.
Since the Finance Minister has ruled out new stimulus packages, future growth prospects will depend on spending by the private sector rather than by the government. The biggest uncertainty is over the performance of agriculture and allied activities. During the first quarter, agriculture, forestry and fishing grew by 2.4 per cent. The impact of the drought will be felt only in the subsequent quarters. Despite the tentative growth signals emanating from other sectors, agricultural performance in a drought-hit year is bound to drag down the rate of GDP growth during 2009-10. The Planning Commission, in a report issued ahead of the mid-term appraisal of the 11th Plan, forecasts a GDP growth of 6.3 per cent in 2009-10, slightly lower than last year’s 6.7 per cent growth and way below the 9 per cent average rate clocked in the three preceding years. It is likely that the impact of the drought on agricultural growth will be worse than anticipated. The Planning Commission’s projection is based on the assumption that there will be a turnaround in the fourth quarter and that agricultural output will fall by only 2.5 per cent, which seems an optimistic estimate in the light of the reported crop losses. Growth prospects would still seem to be marked by a great deal of uncertainty.